Skip to main content

tv   Options Action  CNBC  November 30, 2012 5:00pm-5:30pm EST

5:00 pm
back down but showed a gain in the close of 3.5 points. nasdaq composite even though it came down. and s&p flat. have a great weekend. i'll be on "meet the press" this weekend with david gregory. stay with cnbc. here is "options action" right now. this is "options action." tonight priceless visa trade. a trade that can make you money in visa if the stock goes up, down or nowhere at all. plus just short nike. he'll break it down. and which of these stocks do options traders see paying a special dividend. scott nations goes digging for more dividends. the action begins right now.
5:01 pm
live from the nasdaq market site in new york city's times square i'm melissa lee. these are the traders here and in beautiful los angeles. stocks eking out gains as traders wait on washington. a flashing red warning sign emerging for the consumer. shares of yum brands taking a hit on the warning on the outlook for china. what does this mean for the other multinationals. this is much more than a single stock story because yum is looked at as a barometer for china growth. >> this year as mcdonald's was signaling that china was weakening we are seeing sales trends weaken. yum was doing fantastically in both regions. yum gets it disproportionate from the sales. and a lot of investors were wondering how these guys were bucking the trend for so long. to me this is a little curious.
5:02 pm
just gave guidance on october 10. to me they may have a bit of a credibility problem. the other one we were talking about is tiffany's. they have downgraded yesterday and that was also based on china. you are getting it on both sides of the spectrum. >> that is a great point in terms of their guidance. that is what caught the markets by surprise given the proximity of the most recent guidance. now they are saying there are sudden slowing signs in china. >> sudden slowing signs seems strange to me. a lot of people are concerned about the china growth story for a while. before the fiscal cliff that was a predominant conversation. as i look at it and combine it with fiscal cliff i am pessimistic. the only thing that keeps the economy moving is the effect of wide deficits, monetary
5:03 pm
policies. i am not feeling that good about it. >> we can string our own story together. we have to admit that in november consumer discretionary was the top performing s&p sector. how do you account for that divergence? people are now getting concerned about the consumer? >> we are getting worried about the consumer in china. we knew the industrial story in china was problematic and the consumer was the good news. now we are worried about the consumerer over here despite the fact that housing prices are improving and we are headed to the holiday. dan mentions tiffany. mcdonald's which really hung in there and done well not as well as yum but mcdonald's is faced with problems as far as same store sales and turnover. none of these consumer names, none of them are doing really well. >> to the yum story if we are
5:04 pm
going to say yum is having problems in china you have to think about the other multinationals that are highly leveraged to china growth, a big driver of the future growth will come from that region. you think about nike. >> nike sounded the warning bells on emerging markets way earlier on the year. you can see how the stock started to move lower sometime in late spring and they have had some disappointments in china. if you are an investor in nike and that chart is interesting because it is maintaining that uptrend it has been in for a year -- >> a little carter braxton work. >> to me i think that chart is at an inflection point. when they report their earnings after this yum report and after what tiffanies had to say you have to be focused on this guidance. to me i think it setsz up for a near term bearish play. >> so obviously dan is making a
5:05 pm
bearish trade on nike. here is how it works. this is a bearish strategy where you buy one put and sell a near dated put. you want the stock to fall below the put you are short by the second expiration so this requires timing. >> it is interesting in my opinion because you can buy outright puts or buy a put spread. i want to use the inflated what i think are the dollar prices are the weekly puts that expire next week and sell them. the trade i did today was setting up to own the december regular puts i actually bought the december 7 next friday's expiration, december 22, the regular expiration 95 put calendar.
5:06 pm
my max risk is $1.40. it can trade to 95 next week. i want it to close right above 95. at that point i basically own the put much cheaper and look to spread it for the vertical. >> i'm going to go on a limb and say you agree in terms of the bearish case but do you like this trade? >> i guess yes. i think options traders the world over like these trades because calendars typically you have the math working in your favor. you are capturing the accelerated decay of depth. when you do these calendars the shorter the faster the decay will be. the weekly option is the fastest decaying option. >> when you are selling a weekly option it is almost at yoir beck
5:07 pm
and call. it is working for you so well. given that chart nike has been all over the world for the last couple of years so it is tough to think it will buck the trend and head higher here. when you are doing a calendar you have to pay attention to the timing of the catalyst. dan wants to be long that put so he can do something with it for the december 20 earnings announcement. and you really have to pay attention to that because they can pay with calendars. >> let's hit the stocks versus options button. want to short nike don't do it unless you want to expose yourself to unlimited losses. dan's put calendar risk $1.40. call it a market mystery. retail names have been whacked as consumers show signs of fatigue. why are shares of visa hitting all-time highs. let's get some answers from the
5:08 pm
priceless carter braxtonworth. >> so this is extraordinary in the sense that visa has almost no doubters. it is the definition of complacency. this is a two-year chart. it walks the line. a year ago the market plunged. recently we had the violent selloff. at some point you have a crowded trade. that is what we think this is. take a look at a few more charts. this is the five-year chart. visa did this once before. in the lows of '09 it doubled. it has doubled again from 75 to 150. we think this is where the trouble starts. here is the stock relative to retailers. that is the point. it is also exceeding what would be something as a comp. on a five-year basis take a look at the stock. while it is a closer correlation this is getting quite excessive. if one has the position
5:09 pm
availability go short. >> let's get mike's take. what do you think about the visa story on a fundamental basis? >> it is interesting because if you take a look at wall street research you will bullish bias. what they are trying to do here is justify basically an expanding multiple which is probably the first risk factor and justify that with pretty decent top line growth which is about 10%. this is trading about 24 times earnings. you can have a crack in the top line growth and a crack in the multiple or both. if you have some concerns about recession ary pressures from my perspective this looks stressed. >> mike is going to sell a call spread tonight. let's open the play book and see how the structure looks. you sell one call and then to define your risk you buy a higher strike call of the same
5:10 pm
expiration. you want the stock below the short strike by expiration. that is where you make the most money. >> i was looking at the january 150-155 call spread. i was going to sell the 150s and buy the 155s against it. that is about 40% of the distance between the strikes which is a sweet spot for selling those at the money or near at the money call spreads. i get to collect the $2 and stand still and i would be risking $3 if i road this trade to expiration and it went through the higher strike. if the stock does rally it is not likely to go to the full value immediately. i will have an opportunity to trade around it even if i am wrong. >> i will go on the limb for a second time tonight. i will guess that you are bearish visa for the same reasons you are bearish nike but visa makes money but it is a
5:11 pm
transaction company. a consumer can buy bread and milk and eggs. a consumer can use electronic payments and make money. it is not just visa being used at a nike store or tiffany's store. >> i am long put spreads. i think that's a better short than visa. i like the way mike is doing it. i think the visa story is more sound. to me selling that $5 wide put spread in january for $2 i like it. if the stock does nothing you will be able to collect premium on it. i think options premiums will continue to decay pretty hard over the next month. >> this is counter trench rate. if you are doing a spread you want it to be a spread. the second thing is you don't want to risk a lot to make a little bit. mike is not doing that. he has almost a coin flip which is what you want to do. >> one more time here on the
5:12 pm
stocks versus options b s butto mike's call spread sale can make money and defines the risk to just $300. our thanks as always. got a question send us a tweet. the address is@cnbc options. you'll find trade updates and great trader blogs, as well. coming up next which of these stocks do options traders see you paying a special dividend? here is what else is coming up. you can call him an apple genius. mike's trade made money whether the stock went up, down or nowhere at all. how did he do it? [ male announcer ] the markets keep moving.
5:13 pm
make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account.
5:14 pm
peed train.
5:15 pm
and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account. where were the options traders pumping up the volume this week?
5:16 pm
costco. at one point this week company calls were up more than 5.5 the average call volume. >> you just heard how costco calls were active. what other names are options traders looking at? >> potential for special dividend there are a couple at the top of the list. oracle and microsoft have a ton of cash and they might want to share some of that. those are three names that are likely to do well if you are a dividend investor. >> and in terms of option activity as a clue to special dividends is a little different from regular dividends but you can see a lot of call buying in advance. >> there has been so much demand for costco stock in general. one other name we should throw out there is whole foods. that stock didn't react well.
5:17 pm
costco has been up a heck of a lot. >> we saw oracle call buying in anticipation. >> the question, though, is this good for the market or are people going to buy the stocks to be a share holder for a certain date. >> i don't know that it is good for the market that you have company management making decisions based on vagaries out of washington but there is no question that a lot of these companies that should be returning cash to share holders and that is irrespective on the tax laws on dividends. if you think there is potential they will change they should be doing it now. >> scott has a web extra on how to spot dividends. time for the upside call where we take a look back on winning trades and give you the next move. when apple shares were in free
5:18 pm
fall mike made a bullish trade. >> on "options action" it is how we make genius trades. risk less to make more and that is what mike did with his bet on apple. mike was on the fence about going long the tech giant before his personal hero came on the show. >> i do think the action this morning was classic short term bottom. . >> there was a problem. back over $50,000. ould set him so to avoid ponying up that kind of cash mike sold the december strike put and collected $21. to keep all of that money mike needs the stock to stay above that price through december expiration. of course, there is a tradeoff. by selling that put mike is obligated to buy apple stock at that put strike price or for
5:19 pm
$520 even if it falls well below that level. so how can we protect ourselves if apple shares turn sour? >> buy the 510 puts. >> you're a genius. the risk mike bought the december 5 strike put for $17 and created his put spread. but he did something else. he put the odds in his favor and here is how. between the $21 he collected selling one put and the $17 he spent buying the other put mike took in a credit of $4. that's the most mike could make on the trade. by taking in that credit mike can make money whether apple stock goes up, down or nowhere at all. how is that? even if apple falls below the 520 strike put with the $4 credit he took in mike would not see losses unless apple falls below that put strike price by more than the $4 credit he took
5:20 pm
in or below 516 by december expiration. below that level mike will see losses but by buying the 510 strike put mike has defined his risk. and no worries because since the time of the trade apple trades have rallied 12%. now "options action" fans are taking to ituness and downloading the show and they want to know one thing. what will mike do now? >> before we answer that let's see how much money was made. the structure is the total of $600. mike has made $365 meaning there is only $35 left. the first question is what are you doing? is this perhaps a case where it could have been better to be long options instead of short them? >> apple rebounded but it went up a lot in a short period of time. would have been nice to own call
5:21 pm
options but the rate of being short return options makes it appealing if you are not sure it will happen. those that follow us on twitter we recommended covering it. if you are still short the spread you definitely want to cover it now. here is the reason. you can only make $35 but you are still risking the entire distance between those strikes. the risk/reward relationship even though it is so unlikely that apple would fall doesn't make it worth keeping on. >> dan, i know you watch apple closely. it is interesting to see the price action of the stock. gene munster said the supply constraint issues are gone. the stock didn't do much today. the iphone 5 will hit china mid december. it is not likely to move even on what would have rallied the stock. >> the story has changed. to me this was a stock where the
5:22 pm
expectations were so high for so long. expectations have come down and the fever has broken. to me that china launch is going to be really interesting with the iphone 5. we are waiting on china mobile. china mobile has more subscribers than americans in america. that could be the next stage of growth. >> if you had to bet higher or lower on apple. >> mike was right. i would say higher from here. it is reasonably priced. >> and the promise of a special dividend. >> a reminder as we head to break if you want updates be sure to follow us on twitter. dan posts regular updates of his trades on twitter. if you are on facebook stay posted throughout the week at facebook.com/optionsaction. [ male announcer ] the markets keep moving.
5:23 pm
make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account.
5:24 pm
5:25 pm
[ male announcer ] trading's like a high-speed train. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.
5:26 pm
that is our very own mike showing off his news. you can create your on gangnam style video through jib jab. could be very scary stuff as you see and definitely in the category of optional viewing. i didn't know you had it in you. >> i didn't either. i didn't think anything can make me speechless that quickly either. >> it is time now for the final call. the last word from the options pits. psy in l.a. kick it off. >> if you are going to try to do a counter trend sale try the visa. >> it looks like he is giving his final trade in the video.
5:27 pm
>> the nike trade and visa trade get the math working for you in different ways. >> in the nike one instead of straight up put purchases it makes sense to look the calendars. >> let's see you next time. money in motion is uch right after this. [ male announcer ] the markets keep moving. make sure the news keeps coming with thinkorswim by td ameritrade. use the news links breaking stories with possible breakout stocks, options with potential opportunity, futures and forex with in-depth analysis. it's an all-you-can-eat buffet for all things trading. thinkorswim by td ameritrade. it doesn't just deliver news. it's making news. trade commission free for 60 days, plus get up to $600 when you open an account.
5:28 pm
peed train.
5:29 pm
and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills,
left
right

5 Views

disc Borrow a DVD of this show
info Stream Only

Uploaded by TV Archive on